Do you remember the Ford Pinto? The 1970s car had a nasty tendency to explode into flames in rear end collisions. But the piece de resistance was when litigation exposed a Ford internal memo that showed the company was not only aware of the problem, but had run the math and concluded reinforcing the car […]
Read more...Moody’s reports that global junk bond defaults have doubled in the first five months of 2008 compared with their level at year end 2007 and forecasts that the default rate at the end of 2008 will be 5 times the level of year-end 2007. Those rates were 1.0% at year end 2007, rose to 2.0% […]
Read more...A piece by John Dizard in the Financial Times, “Get used to underwriting big lenders,” made me realize a bit of cognitive blindness. Central banks are committed to backstopping the credit default swaps market. Of course, that should be obvious. The Bank of England, ECB, Fed, and other central banks have intervened in various ways […]
Read more...In a nutshell, yes, but not in the way the industry hopes. In a Financial Times article. Gillian Tett files a somewhat dumbfounded report from the European Securitization Forum in Cannes. While the event has gone wildly downscale from last year’s bash, the participants were hopeful that the return of good times was just around […]
Read more...An institutional investor passed along these initial estimates of the damage that the Street will take from the downgrade of MBIA and Ambac, Bear in mind that these presumably do not become operative until Moody’s joins S&P in deeming both concerns’ insurance subs to be AA. These loss forecasts are only those to banks and […]
Read more...So at least one big rating agency, Standard & Poor’s, finally got some nerve and downgraded the two big monolines, MBIA and Ambac . Note that this downgrade applies only to the insurance subsidiary, but that is the critical entity, the one that provides debt guarantees. From Bloomberg: MBIA Inc. and Ambac Financial Group Inc., […]
Read more...We had said that the melodrama with the big bond insurers MBIA and Ambac early this year had failed to solve their underlying problems and was merely postponing the inevitable by a few months. Readers may recall that an effort by New York insurance superintendent Eric Dinallo to get the monolines to raise substantial amounts […]
Read more...Just when the Fed thought it had gotten financial markets turbulence under control, conditions start to worsen. Lehman is looking wobbly and markers are signaling increased worries about interbank funding. Bloomberg tells us that a key indicator of bank willingness to lend, the spread between three month Libor and the forward overnight index swap, is […]
Read more...Lehman managed to escape the same fate as Bear Stearns around the Ides of March partly due to the heroic intervention of the Fed, in part to reporting first quarter profits. A member of the skeptically-minded short cohort described the earnings as a sham, and noted that they depended entirely on counting the increase of […]
Read more...It appears the US central bank got taken to the woodshed at a conference hosted by the New York Fed for overly aggressive rate cuts, but despite jeering from the peanut gallery, it looks likely that the Fed will hold pat until at least the fall. While I have no idea of how representative his […]
Read more...There’s been a lot of hand-wringing about the alphabet soup of new Federal Reserve facilities having hidden costs and generating unintended consequences. The biggest focus of concern is that the assets that the central bank has taken on may come a cropper, leaving the taxpayer holding the bag. Reader Lune has pointed out some examples […]
Read more...Gretchen Morgenson of the New York Times in “First Comes the Swap. Then It’s the Knives.” delves into a dispute between UBS an Paramax, a Connecticut-based hedge fund group over a credit default swap written by Paramax in 2007 on a subprime CDO (you can already guess how this movie ends). Morgenson-bashing is a popular […]
Read more...Satyajit Das has a very useful post, “The Credit Default Swap (“CDS”) Market – Will It Unravel?,” in which he describes some of the ways that CDS may fail to perform as expected in real world situations, ie, when companies start getting in trouble. While this work isn’t quite at the Tanta Uber-Nerd level of […]
Read more...Two UK columnists looked at the credit markets, and neither liked what he saw. And they wrote it up more colorfully than most of their American counterparts would have. The first, Nils Pratley of the Guardian, tells us that that the idea that the credit crisis is on the wane is more than a tad […]
Read more...There’s an odd little story on the home page of the Financial Times website, odd in three respects. First, it discusses a development, namely, the launch of a credit derivatives clearinghouse that is important enough that it ought to be reported more broadly, yet several searches on Google News came up empty-handed. Readers no doubt […]
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